Does Having an Oil Well on Your Land Affect Your Property Value?

by Sarah Brumley

Oil pumps can provide income for a landowner

An oil well does indeed affect your property's value. If you lease or sell rights to drill oil, gas or other minerals on your land, you can earn royalties on the proceeds as well as a signing bonus. If your land is in a remote area and no residences are nearby, the entire site's value should rise. If it's near a town, the effect on its value is a bit more complicated.

Property Can Be 'Split Estate'

Unless you measure your land in square miles, you probably won't own the oil well on your property. More likely, if you have oil or gas under your land, you'll split your property into surface rights and mineral rights -- a so-called split estate. You can lease or sell the mineral rights to an oil or gas company, giving the company the right to build a well on your land. Your surface rights remain under your control, excluding the part you've leased for well access. However, your land is likely to draw only industrial development, so if it's near a town or city, its value may fall.

Check Local Zoning Laws

Your mineral rights are meaningless if you can't use them. In some areas, you may face restrictions from zoning laws. In 2012, Pennsylvania enacted a law, Act 13, Section 3304, designed to weaken local zoning laws so that oil and gas producers could tap resources beneath cities' land. That's according to a "Harvard Environmental Law Review" article by Ben Apple in September 2013. Robinson Township, west of Pittsburgh, has been battling the law ever since in hopes of retaining the character of the neighborhood.

Guidelines for Leasing

Some cities are quite friendly to the oil and gas industry. Fort Worth, Texas, issued more than 1,000 permits for drilling within city limits between 2001 and 2008. The city enacted new safety regulations in 2009 that allowed drilling within 200 feet of a residential water well -- less with the water-well owner's written permission. Fort Worth's website even posts a guide to leasing mineral rights. The highlights: All terms are negotiable except your name and property description. Leases are usually for one to 10 years. Be sure you're leasing, not selling, the mineral rights. Royalties -- your portion of the well proceeds -- are usually paid within 30 days of production and every 30 days thereafter.

Consider Your Relationship With Neighbors

North of Fort Worth, four municipalities have passed moratoriums on new wells, and hundreds of anti-fracking ordinances have been passed across the country, from New York state to Hawaii. If you lease your mineral rights, you may receive an attractive signing bonus as well as royalties from the well activity on your property. However, your neighbors are not apt to cheer if you're hosting an oil or gas well on your land. You should weigh how a well will affect your land's total value if nobody wants to be your neighbor at all.